At the Review, I had the fortune to write about what interests me. I still had to pitch the story, and Michael and John were always helpful with direction. Looking back, they were a great team - a matchless mix of firm opinions, team empowerment, and gentle, if at times drunken, advice. Funny that in this #metoo time, I don't remember ever feeling threatened in the company of a bunch of bar habitues. 

In any case, the article below was one such example of a meaty assignment. I spent about four days in Bangka, travelling through the island working on a hunch that a great story was unravelling. Decentralization would become the persistent fraying of the seams for Indonesia, as local governments squandered budgets and communities fall behind in terms of health and education outcomes. Local laws became subject to the whims of fly-by-night politicians. Looking back, we should have been more vigilant about these red flags - and acted. This article is from 2001.

Indonesia - A Law Unto Themselves

Decentralization was meant to avert disintegration. But successful businesses are finding themselves at the mercy of local interests and rules.

Thrive at your peril: that's the lesson investors and successful businesses in decentralizing Indonesia can take from the woes of the world's largest tin producer.

And don't count on the law of the land being upheld out in the provinces either. Pt Tambang Timah has become one of the first corporate casualties of Jakarta's efforts at regional autonomy and it's a bitter pill to swallow after decades of unbridled growth, privilege and autonomy on its Bangka Island base off South Sumatra. "Timah seemed bigger than the government," says a veteran bureaucrat of those halcyon years.

No longer. On October 31, Timah, now 35% publicly-owned, reported a 92% drop in net profit for the first nine months of the year due to illegal mining proliferating under Indonesia's new, regional autonomy regime. The market was so inundated by contraband ore that tin prices fell to record lows in October--fetching $3,600 a ton against the $4,000 it costs Timah to produce a ton of the metal.

Timah is bleeding, losing $5 million a month. Company officials say 70% of the 5,200 workforce may be laid off early next year, while fixed assets are up for sale on Bangka. More worryingly, the local government is doing almost nothing to prevent the plunge into bankruptcy. "We want Timah to survive because we need the income they give us, but their role will be much smaller," says Robuan Zainuddin, a top provincial official.

This nonchalance is bearing out the suspicions of many investors that the autonomy programme launched in January is creating lawless fiefdoms. Yet the point of decentralization, which gives district-level administrations significant commercial and political power, is to prevent Indonesia's disintegration. In practice, laws remain unclear and the authorities are taking advantage of this.

In Timah's case, the district chief on Bangka is allowing other companies with no mining operations to export tin, now dug out of Timah's concession by thousands of poor illegal miners. Hence the tin that exporters buy from illegal mines--there are an estimated 6,000 on Bangka and nearby Belitung Island--carries proper certification when it is sent overseas to be smelted. The district wants to go further to legitimize illegal mining by setting up its own mining company, which would buy tin from the unregistered producers.

And Jakarta's agents in Bangka are doing nothing. Trade Ministry official Ramlan Nuri describes his position as, "an assistant to local officials--they are our bosses now." Ironically, Timah's troubles partly sprang from its idealism. Problems began with the end of the Suharto dictatorship in May 1998. That led to a tide in poverty-driven popular uprisings: farmers taking over golf courses, villagers looting plantations and miners panning for gold on the concessions of multinational firms.

The villagers of Bangka were no different, slowly coming out of their shacks to mine tin. When Timah posted a $50 million net profit that year, the people of Bangka wanted their share. Local politicians proposed that some of Jakarta's 65% stake in the firm be shared with the provincial government. Timah had already subcontracted most of its mining operations on Bangka to around 100 local partners, but it tried to appease the community by offering small concessions to villagers, who would sell their ore to the company. It didn't work, especially after Jakarta declared tin a free commodity in late 1998. Freelance operations mushroomed and sold their tin to the highest bidder.

Eager to curb smuggling, Timah bought more and more tin from its suppliers. With a stock of more than 7,000 tons--double the usual amount--Timah cut down its purchases in May. The local government panicked, and in June issued export licences to local entrepreneurs to unload the tin. "That was our death card," says a Timah executive, who explains that nowhere else in the world are companies with no mining concessions allowed to export tin.

But in Indonesia, they are taking over the industry and are expected to export a total 42,000 tons of tin this year. Timah, with 13% of world output, does not match this even during good times. Industry players are worried that the amount of illegally mined tin will multiply and further depress prices. So the world's top five tin producers are urging independent smelters to not buy ore originating from illegal mines. Tin now hovers at $4,070 per ton, compared to an average $5,200 per ton before prices began dropping in June.

Timah chief Erry Hardjapamekas blames the chaos in the market on the unfair competition posed by illegal miners. "We pay taxes, we pay royalties, they don't," he says. Hardjapamekas is scrambling to save the company. He's scouting for mining licences in Malaysia and Thailand, pursuing offshore explorations in Vietnam, and trying to diversify into gold and coal. Jakarta is even examining merging Timah with nickel and gold miner Pt Aneka Tambang, which it has a 65% stake in.

Meanwhile, Mines and Energy Minister Purnomo Yusgiantoro said on November 22 he wants illegal exports of tin stopped, but the authority to issue such a ban lies elsewhere--at the Trade and Industry Ministry. Hardjapamekas's even offered his resignation, which the central government refused.

That is little comfort to the company's nervous rank and file, who grumble that their bosses could have done more to avert disaster. Mid-level executives, with their own ideas about resolving the crisis, suggest that provincial legislators be appointed to Timah's board of commissioners. "We should have anticipated the aspirations of the local government," says Setyo Hardjono, head of inland mining operations.

These aspirations are multiplying by the day. Legislator Osfindinar not only wants politicians like himself appointed as commissioners, but he is seeking a 25% share in Timah for the local government and wants more taxes from the company. "Thirty years from now, the [local] government will be taking care of this place, not Timah," says the politician. "We don't want the company to abandon the island as a ghost town." Provincial official Zainuddin heads a task force tackling illegal mining, which advocates widening the playing field. In future, says Zainuddin, Timah will compete not only with Kobatin, an Australian joint venture on Bangka, but also with a proposed mining firm to be run by the local government and private-sector interests.

Timah executives say the newcomers are unlikely to set up proper mining operations because they lack the human resources and the cash. The so-called mining companies would only be purchasers of tin. Under such circumstances, mines now deemed illegal would flourish--and pay taxes.

That would be good news for district chief Eko Maulana Ali, the ultimate beneficiary of illegal mining. Ali, who has a mining degree, was unavailable for comment but his peers describe him as adroit at seizing opportunities. Bangka's gossip mill is rife with stories about Ali's possible run for the governorship. District officials say they are being told that autonomy -currently under revision in Jakarta--will tip the power over to the provincial administration, weakening the grip of district chiefs. There's another rumour about the provincial government purchasing and relocating to Timah's headquarters, which is up for sale.

If both rumours are true, and Ali rules Bangka--and its tin--Timah's takeover will be conclusively, and dangerously for Indonesia, final. (By Dini Djalal)

From http://www.feer.com/ 12/06/2001